MORTGAGES AND FURTHER INTEREST RATE INCREASES
Following weeks of speculation and debate, Liz Truss has been appointed prime minister of the United Kingdom. With a new prime minister now in place, there will no doubt be new economic policies brought in.
This is especially likely considering the financial situation in the UK currently, with the British Pound (£ Sterling) having now dropped to its lowest value since 1985.*
With a financial crash and potential further interest rate rises predicted, this could have a significant impact on mortgage deals moving forwards.
In this article we aim to inform about the current financial situation in the UK as well as how this will affect interest rates in relation to mortgages. We can assure you it is still possible to secure a great mortgage deal even in these circumstances.
FURTHER INTEREST RATE RISE
In the last year the UK has seen an interest rate increase of 54% in April with an 80% increase coming into place as of October. This meant the interest rate charged on loans will have jumped from 1.25% to 1.75% – a 0.5% increase in the space of 6 months.
The Financial Times are now predicting that the interest rate will rise from 1.75% to over 3% as of December. This will have a huge impact on anyone with a current variable rate mortgage as this will affect the interest element paid per month for the loan, causing a significant increase in costs. We have illustrated the rise in interest rates from December 2021 up until the end of 2022 in the graph to the right:
Our advice to anyone concerned about these increases would be to consider remortgaging to a fixed-rate deal, before these interest rate increases come into place. This will allow a set amount of time with financial security, with no worries about spiralling costs due to further inflation rises. This will set cost will apply until the end of the fixed term – up to 10 years at longest.
For more information about the advantages of fixed rate mortgages CLICK HERE.
HIGHEST INFLATION LEVELS IN 40 YEARS
The cost of living in the UK has risen significantly and consumer price inflation has spiked to its highest level in over 40 years.
This has led to increases in the cost of essentials such as food prices, fuel and energy costs. Energy price rises in particular have been a major area of concern for many people across the UK.
This has the potential to have a massive impact on the finances of people across the UK, with many now facing having to budget and cut back to afford their monthly bills.
When faced with rising costs, re-evaluating expenses and assets can seem a logical first step to ensuring financial stability. Credit cards and loans may seem the only financial option for many to get by.
If facing higher costs and even potential debt, there are ways of using current assets you have to your advantage such as selling any shares in stocks you have or cashing in other investments.
The equity held in a currently owned property can be used as a means for securing a loan, if debt is either imminent or seems very likely to occur due to higher living costs.
This can be accessed via a full remortgage, in which the mortgage deal is completely swapped to a new amount, different lender, different rates etc. depending on individual needs and circumstances.
You may also be able to further loan against the current mortgage if the lender is open to this, or even take out what is known as a ‘second charge’ mortgage. A ‘second charge’ or second mortgage is a separate mortgage taken out alongside the existing one with two sets of monthly repayments.
Any of these options can be useful if struggling with debt but it is vital to weigh up your options as each one is a big commitment in terms of repayments. If more funds are needed short term and additional monthly repayments seem affordable moving forwards, a remortgage or second charge mortgage can be a great idea.
For advice on whether a remortgage for debt consolidation is right for you, speak to a mortgage broker or specialist or CLICK HERE for more information.
For general information about the process of getting a remortgage CLICK HERE.
POSSIBLE SUPPORT PACKAGES
There are several currently existing support packages in place currently within the UK. These are intended to support those who are vulnerable or on low incomes from struggling. The support in place can be used to pay to power their homes or for other monthly expenses such as their rent or mortgage repayments.
Some of these include
- £650 cost of living payment for those in receipt of certain benefits or tax credits
- Winter fuel allowance for pensioners, with an additional £300 top up for eligible households
- £150 cost of living payment for those with disabilities to support with living costs related to their additional needs
- A government mandated £400 discount on energy bills directly from energy suppliers to millions of households, split over 6 months starting from October
Liz Truss has also now announced the intention to cap the maximum price paid for energy by a typical household at £2,500 per year for the next 2 years, with equivalent support offered for businesses.
Whilst a step in the right direction for many, even these costs are considerably higher than in previous years. This means there is still a definite need for caution when it comes to household spending over this winter.
HOW INFLATION AFFECTS MORTGAGE INTEREST RATES
Inflation directly impacts the interest rates charged across the UK. When the Bank of England assesses their current base interest rate every quarter, they take into account the rise in pricing of basic resources such as fuel and electricity.
If there has been a noticeable rise in these costs, as there has been in the last year, they will raise interest rates to try and stabilise the economy. Higher rates of interest lead to less demand for products and services which in turn makes them more available. This should in theory later lead to the cost of these decreasing, benefitting the British public.
As all loans will usually incorporate interest as part of the repayment terms, mortgages will definitely be affected by a rise in interest rates. Anyone currently on a fixed-rate mortgage shouldn’t have anything to worry about for the time being as their interest rate will be set at a fixed price and shouldn’t change based on this rise.
If nearing the end of the fixed-term, it may be worth considering options such as a remortgage to avoid higher costs when switched onto the lender’s standard variable rate.
Anyone currently on a standard variable rate or tracker rate mortgage will most likely see immediate effects on their mortgage payments. Again, it is worth weighing up the options in this circumstance. A benefit of a variable rate is the possibility of lower pricing if the interest rate decreases. However, with the current economic forecast a decrease seems unlikely at any point in the near future.
Find out more – Will mortgage rates go up in 2022?
If wanting to get a new mortgage or looking to remortgage a property, now would be the best time to do so before further pricing increases come into place.
A mortgage specialist will be able to assess lenders across the market and find the most favourable rates for a new mortgage. With so many lenders currently operating in the UK, there will be one out there able to supply a loan suitable for your needs within a reasonable budget.
We have over 20 years experience in securing great mortgage deals for homeowners and property investors nation-wide. To speak to one of our specialists CLICK HERE or call 0330 118 8188.
If you want to do some further research, check out our handy guide on how to apply for a mortgage by clicking HERE.
*according to the Telegraph